CFPB sues big U.S. banks over alleged Zelle payment fraud
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Zelle's operator and three major bank co-owners aren't protecting consumers from fraud on the platform, the Consumer Financial Protection Bureau alleged in a lawsuit Friday.
Why it matters: Customers of JPMorgan Chase, Bank of America, and Wells Fargo have lost more than $870 million collectively since Zelle launched in 2017, the suit claims.
Zoom in: The CFPB cited alleged "critical failures" on the part of the banks and Early Warning Services, a bank-owned fintech firm, which designed and operates Zelle.
- Those purported "failures" include having limited identity verification methods, allowing repeat offenders to hop between banks, and abandoning customers after fraud occurs.
- "The nation's largest banks felt threatened by competing payment apps, so they rushed to put out Zelle," CFPB Director Rohit Chopra said in a statement. "By their failing to put in place proper safeguards, Zelle became a gold mine for fraudsters, while often leaving victims to fend for themselves."
- The agency alleges that the firms failed to properly investigate fraud complaints or give victims reimbursements.
What they're saying: Early Warning, JPMorgan Chase and Bank of America denied the CFPB's allegations in statements to Axios.
- Jane Khodos, a spokesperson for Zelle, said that the CFPB's lawsuit is "legally and factually flawed," also claiming that it was "driven by political factors unrelated to Zelle."
- Khodes claimed that "the CFPB will also encourage rather than prevent criminal activity by incentivizing criminals to make false claims against banks and credit unions, while also removing incentives for consumers to exercise caution when sending money."
- Patricia Wexler, a spokesperson for JP Morgan Chase, also called the move "political," saying that the CFPB "is now overreaching its authority by making banks accountable for criminals, even including romance scammers."
- William Halldin, a spokesperson for Bank of America, said "we strongly disagree with the CFPB's effort to impose huge new costs on the 2,200 banks and credit unions that offer the free Zelle service to clients."
- Wells Fargo declined to comment.
The big picture: Zelle, which allows for instant payments, reported 120 million users in 2023, which includes both individual consumers and small businesses.
- The banks said earlier this year that regulators were looking into how fraud complaints on Zelle were handled.
Editor's Note: This story has been updated with responses from the banks named in the suit.
